Setting up or expanding a business is an exciting process but can also be an anxiety-ridden one. Therefore, making informed and well-calculated decisions is paramount to success. Besides ideas, capital is crucial in running a business, and most times self-funding is not enough, hence the business loan option.
Irrespective of the business stage, entrepreneurs find themselves in tight and urgent spots that necessitate quick money. Usually, the safest source for such emergencies is a business loan. Small business owners might have endless micro-finance options and other institutions but the first process should be to compare small business loans with Lantern by SoFi
According to Lantern Credit, 43% of small business owners seek businesses in different stages. This shows the high likelihood of an entrepreneur to approach a lender.
Here are different types of business loans that small business owners should consider based on their needs and objectives.
1. Small Business Administration Loans
Under this category, there are different loans to business owners that meet specific requirements and qualifications
7(a) Loan Program
This is the most common loan for small business owners because of its basic nature. Entrepreneurs can use it as working capital, refinance debt, purchase assets, or acquire and expand the business.
Pros
- Long repayment period
- Relatively low interest rates
- No collateral required
Cons
- Rigorous qualification process
- Individual security
Microloan program
Just like the 7(a) loan, SBA offers loans for similar uses. The main difference with this type is the shorter repayment period and smaller loan amount.
Pros
- Quick loan processing
- Lends small business that may not qualify traditional lending procedures
Cons
- Government and bank as layers of bureaucracy
- Restrictions (can’t finance debt or buy real estate)
CDC/504 Loan Program
Small business owners have a long-term fixed rate, especially for equipment and real estate. Approved lenders cover up to 50% while SBA provides 40% of the loan. It is the responsibility of the borrower to cover the remaining percentage.
Usually, borrowers have a chance to negotiate from 10 to 20-year maturity.
Pros
- Huge loan amounts
- Easy qualification
- Flexible payment terms
Cons
- Spending restrictions
- Browser must be capable to cover 10% of the loan
- Must create jobs
2. Traditional Loans
Unlike SBA loans with strict requirements and qualification processes, traditional loans are more flexible. Small business owners have more opportunities in this category of loans.
Equipment loan financing
Equipment for business covers everything from tablets to big machinery in a warehouse. Small business owners can pay monthly installments for the item as they attend to other needs of the business.
Pros
- Quick processing time
- Flexible terms
- No extra collateral
Cons
- Only buys equipment
- Relatively high interest rates
- No equipment leasing, only purchase
Line of Credit
Entrepreneurs operating in unpredictable business environments use this for any amount they need whenever they need.
Pros
- Only pay for what was taken
- Balances cash flow in off-peak seasons
- Encourages business flexibility
Cons
- Difficult qualification process
- Extra processing fees
It is important to take time and make use of Lantern Credit’s knowledge in evaluating all the loan options. Remember, prioritizing business objectives and needs is the secret to growth and success.
